The voices of Urban Institute's researchers and staff
October 27, 2017

Who does the Public Service Loan Forgiveness program really benefit?

October 27, 2017

Ten years ago this month, Congress enacted the Public Service Loan Forgiveness program (PSLF), promising student debt forgiveness to workers who dedicated part of their careers to the public sector. The program aimed to incentivize students to choose—or at least compensate students for choosing—less lucrative careers in the public sector.

Although much has been discussed of late about the ballooning costs of this program, which is on the chopping block under the Trump administration, there have been few questions raised regarding the fundamental premise: Are careers in the public sector really less well compensated? In many cases, the answer is no.

More than half a million people, many of them with more than $100,000 in debt, have already submitted employer certification forms for PSLF, which allows former students who work in the public sector and make regular payments on their federal student loans to have debt forgiven after 10 years.

We don’t know exactly where those former students work or what they do. But based on data from the American Community Survey, we do know that most occupations exist in both the private and public sectors, as defined by PSLF, and in many cases, there is little difference in pay. This means there may be people doing nearly identical work for nearly identical pay, only some of whom are eligible for PSLF.

What is the public sector?

The Public Service Loan Forgiveness program defines the public sector broadly, offering loan forgiveness to workers in federal, state, and local governments, as well as at private nonprofits. This encompasses roughly a quarter of the 25- to 34-year-old workforce with some postsecondary education.

These sectors tend to pay differently, as the chart below illustrates. The size of each bubble indicates the number of people employed in that subsector, including the private sector as a comparison.

Median Wages by Level of Education and Sector

A couple trends become clear. First, the fraction of workers in the public sector, as defined by PSLF, grows in near lockstep with education level. The higher your level of education, the more likely you are to work in the public sector.

Second, it is not necessarily the case that jobs in the public sector pay less. Jobs in the federal government are great bets, while state government and nonprofit jobs tend to be less lucrative. Moreover, these differences in pay depend on your level of education.

What jobs are in the public sector?

Differences in pay also depend on occupation, so to truly understand whether there's a disparity between sectors, we need to dig deeper.

For PSLF purposes, the public sector includes a wide swath of occupations. Roughly a quarter of public-sector workers are employed in education, 12 percent are in medical professions, 8 percent are in protective services, and 7 percent are in community service occupations.  

There are also many people employed in occupations less readily identified as public sector. Ten percent of people in the public sector are office workers, such as bookkeepers or customer service representatives.

Most of these eligible occupations have one thing in common, though: they generally pay better in the public sector.

Each bubble in the chart below represents a detailed occupation, with the size of the bubble representing the number of people in the public sector. Occupations centered above the red line earn more in the private sector, while occupations centered below the red line earn more in the public sector.

Differences in Private and Public Sector Wages

Most bubbles, particularly the large ones, fall directly on the line, indicating little difference between public-sector wages and private-sector wages. For example, one of the largest occupations among bachelor’s degree holders in the public sector, registered nurses, exhibits near parity in pay across sectors.

This wouldn't matter if all nurses worked in the public sector, but more than half of working nurses are in the private sector. It isn’t clear why a nurse employed by a private for-profit hospital is providing any less of a public service than one employed by a private nonprofit hospital. Instead, it seems large groups of people are doing essentially the same work for similar pay, but only some will reap the benefits of PSLF.

How could we fix it?

If the focus of PSLF is truly public service, a possible avenue for reform might be more precisely defining what public service means. Arguably, the original definition’s appeal was in its transparency. The alternative, identifying particular occupations, may be more complicated.

But there are precedents for this. Many loan forgiveness programs, at both the state and federal levels, are targeted at specific professions, such as nursing, teaching, or social work. (We could be even more specific. For example, among lawyers, we might wish to include public defenders but not associates at large law firms.)

These are typically professions with explicit credentialing criteria, avoiding the issues of ambiguous job titles. Reforming PSLF along these lines could provide incentives for people to choose occupations that serve the public interest, without the risk that the program becomes unduly burdensome to taxpayers.

Photo via Shutterstock.

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